The latest market summary report discusses the opening of two internationally branded hotels - the Movenpick City Star Hotel (228 keys) and the Centro Rotana by Shaheen (254 keys) - which adds to the burgeoning supply of quality branded midscale hotels in Jeddah.

The opening marks the first property for Centro Rotana in Jeddah, while the Movenpick City Star Hotel is its third property in the city. A further two Movenpick properties are under construction and expected to open within the next three years.

Hotel occupancies in Jeddah have declined by 4% compared to the same period last year, but remain strong overall at 72%, according to the report.. Unlike most other regional markets, average daily rates (ADRs) in Jeddah have also shown strong performance over the summer months (increasing by 5% compared to the same period last year) due to domestic tourism during the summer holidays and the Hajj pilgrimage in September.

However, a challenging economic backdrop amid low oil prices and government reforms continues to add to a slowdown across the residential, retail and office real estate sectors.

Mr Jamil Ghaznawi, National Director and Country Head of JLL KSA, said: "As the government changes the strategic direction of the country, the demand-supply ratio widens slightly amongst the office, residential and the retail market. The hotel segment has also witnessed a decline in occupancy rates of four percent compared to Q3 in 2015 despite average daily rates (ADR) increasing during the summer months."

"The office market also observed an increase in the number of vacancies over Q3 as the government introduces measures to resize the civil service sector to reduce government expenditure and increasingly weave into the private sector. And landlords responded to the current economic climate optimistically, converting offices into alternative assets such as hotels."

The report says the retail sector was affected by the 'post- oil economy' phenomenon, "which has seen subsidies cut and taxes introduced". As a result, these elements have affected the spending power of Saudi households, and in turn the demand for retail in Jeddah.

"Although retail vacancies have decreased slightly over the past year, they increased from 7% to 10% over the past quarter as the overall market begins to soften. These vacancies however were mainly attributed to shopping centres in less prime locations, with few vacant units in the prime malls," said Mr. Ghaznawi.

With the reduction of jobs in the civil sector, the residential market is impacted by the subsequent limited purchasing power of civil servants, with the market now approaching the peak of its current cycle and showing initial signs of softening in some sectors.

"Keeping this in mind, the market conditions are currently in favour of tenants who are looking to occupy vacant units. They are now in the position to negotiate lower rental prices, increasing the demand for the rental market in the residential sector," says Jamil Ghaznawi.

Office: Several office buildings completed over Q3, most of which are located on Prince Sultan Street, adding over 23,000 square meters of office space to the market. The largest addition was Al Olaya Tower which added over 10,000 square meters. The completion of Emaar Square has been delayed to Q4 2016. Following the delivery of Emaar square, the next notable deliveries to the market will be phase 1 and 2 of Lilian which are expected to complete in 2017 and 2018 respectively and the commercial tower part of Jeddah Park, expected to complete in 2018.

There have been a number of vacancies over Q3 mainly from the energy and construction sector occupiers. Quarter-on-Quarter lease rates have remained virtually unchanged at SAR 1,124 in Q3, while Year-on-Year lease rates have decreased marginally by 1 percent.

Residential: The total supply of residential units in Jeddah currently stands at almost 800,000 units, with approximately 4,000 number of units entering the market in Q3. Future quality mid-rise projects include the nearby Gardenia Residence and Diyar Al Salam Residences. A further addition to the high rise segment is also expected once the Farsi Seven Towers complete, which are expected by the end of the year.

There has been little change in the apartment segment of the market Quarter-on-Quarter with both sales and rents remaining unchanged. Year-on-Year sales decreased marginally, and rents increased by around 3percent. Showing further signs of slowing down. The villa segment of the market has witnessed a decline in sales of -4 percent and -7 percent Quarter-on-Quarter and Year-on-Year respectively. Rents have remained relatively stable increasing marginally by 1percent.

Retail: Construction of the Elaf Galleria completed in Q3 moderately increasing supply by just over 2,900 square meters of quality retail space. Total stock currently stands at 1.15 million square meters. Year-on-Year lease rates have remained relatively stable for both regional and super regional shopping centers which decreased by 1 percent. Quarter-on-Quarter rates for regional centers increased by 5percent, the same rate as the previous quarter, while growth in lease rate for super regional centers has slowed to around 5percent.

Signs of the impact of weakening spending power on demand for retail space has started to emerge. Although Year-on-Year vacancies have decreased by 2percent, Quarter-on-Quarter vacancies increased from 7 percent in Q2 to reach 10percent in Q3.

Hotel: Q3 2016 witnessed the opening of two internationally branded hotels: the Movenpick City Star Hotel (228 keys) and the Centro Rotana by Shaheen (254 keys) which adds to the burgeoning supply of quality branded midscale hotels in the city. It marks the first property for the brand in Jeddah, while the Movenpick City Star Hotel is its third property. Furthermore, two more Movenpick properties are under construction and expected to open within the next three years.

The total supply of quality rooms in Jeddah now stands at approximately 9,400 keys. A further 700 keys are expected to open over the next three months which include the Assila Rocco Forte, Ritz Carlton and Novotel Jeddah Tahlia.

Occupancy rates have decreased by 4percent to 72percent year to (YT) August compared to the previous year. While the first half of the year saw Average Daily Rates (ADR) fall below the same period last year, Q3 is showing stronger results. The knock-on effect of the 2016 Hajj pilgrimage, which took place in early September, is reflected in the year to (YT) August Average Daily Rates (ADR) which increased by 5 percent to reach USD 270 compared to the same period last year.

Jeddah prime rental clock

This diagram illustrates where JLL estimates each prime market is within its individual rental cycle as at the end of the relevant quarter.